Retail market update Winter 2024

In short: The recovery in the retail sector has paused, as more challenging economic and financial conditions for households take their toll on this market.

After rising in the summer, footfall fell again in Q3, and businesses are facing higher costs when employers’ national insurance rises in April 2025. A lack of new retail development is curbing the rise in vacancy rates. 

• October’s budget has an impact on both consumer and business confidence. Households are increasingly concerned about their finances, not helped by the raising of the energy cap in October, which pushed up CPI inflation to 2.3% up from 1.7%. Inflation is expected to rise further into the start of next year, putting more pressure on households already dealing with the rise in the cost of living after double-digit rises in inflation last year. In addition, retail businesses are looking ahead at the rise in employer’s national insurance in April next year and the impact that will have on their bottom line.  
• October’s retail sales figures showed that the volume of sales was already sliding back, even before the Budget, and the British Retail Consortium (BRC) has reported that the high street suffered ‘a bad start to the festive season’.  
• In addition, Labour’s promise of an overhaul of business rates to benefit high street retailers looks like it will be some time in coming. The system has become so convoluted that simplifying it could actually reduce the tax take (around £26 billion a year) – something which the Government is reluctant to do. The measures announced in the Budget actually cut the relies for Retail, Hospitality and Leisure properties, from April 2025, even as the Chancellor promised to lower business rate multipliers for these properties from April 2026. 

• Development levels and supply is still relatively low across the sector, but vacancy rates have been pushed up by business failures, most recently Homebase, which entered administration in November 2024. While 70 of its stores have been bought as part of a pre-pack deal, that still leaves 49 stores facing an uncertain future. Other notable brands which failed this year include Carpetright, Ted Baker, The Body Shop, Lloyds Pharmacy, Matches Fashion and Muji.   
• The average vacancy across the retail sector was 3.2% in November.   
• Retail parks have the lowest vacancy rate at 2.9%, even though this has crept up from 2.3% at the end of the summer.   
• Shopping centres have been the most challenged by recent market conditions, and the vacancy rate for these assets was 6.2% in November. However there are very tentative signs that shopping centres could be turning a corner, with void periods at a 12-year low in Q2 this year. Capital value growth was up 0.4% year-on-year in September, coming off a very low base, the highest rate of growth (and one of a limited number of months registering positive growth) since December 2015.  
• Rents re-based during the pandemic, and there is now some rental growth being registered for high street shops (up 2% since April last year) and retail warehouses (+2.3% since April last year). Rental growth is even stronger for prime luxury retail destinations, including Bond Street and the King’s Road in London, while rents in the high street in wider London are up 4.5% in the last 18 months, according to MSCI. Agents also report rental growth for prime retail locations in Cathedral towns, even as the prime footprint of these towns continues to shrink.  
• The Levelling Up & Regeneration Act (LURA) has now come into force, and as part of this, High Street Retnal Auctions (HRSAs) will give local authorities the power to force vacant units into compulsory rental auctions if the property has been unoccupied for a year, or 366 days in the last two years. More than 9% of the UK’s high street units have been vacant for more than a year, and landlords have eight weeks to find a tenant once a Council has served notice that it intends to force an auction. There are questions around whether there is capacity in local authorities to administer this scheme, and also the Centre for Cities has questioned if the move will address the biggest factor driving vacancies, including the slow growth in local disposable incomes.  

• Investment volumes remain muted.  Some £8 billion was invested into the UK retail sector in the year to November, and this figure was boosted by the £1.5 billion purchase of Hammerson’s 42% stake in Bicester Village by Catterton which completed in September. Alongside this, several large luxury retail deals on London’s Bond Street also flatter the headline figure, with three sales totalling around £400 million.  
• Investors are seeing value in shopping centres however, baking in large discounts as they buy the asset. For example, Bridges shopping centres in Sunderland was bought for £24 million in August, compared to the previous sale at £152 million a decade ago.  
• In line with the industrial and office sectors, there is strong investor interest in schemes that have the potential for re-development, especially for residential and urban logistics.  
• Yields have stabilised after moving out strongly in line with rising interest rates. But the yields performance remains highly localised and subsector specific.  

Retail: Key investment transactions

Source: Cluttons, CoStar

Key statistics:

Source: Cluttons, CoStar, MSCI All Retail * net initial yield.

The information provided in this report is the sole property of Cluttons LLP and provides basic information and not legal advice. It must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Cluttons LLP. The information contained in this report has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. Cluttons LLP does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.